How is Employee's NIC recorded in PnL?

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digimars

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Oct 9, 2014
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  • #1
    I am just trying to understand this.

    I report director's salary to hmrc. Then I pay NIC and and income tax.

    Now in PnL, I can see my accountant recorded Director's Salary (that's what I reported to hmrc) and Director's NI (as Secondary threshold percentage). The question is, is the Director's Salary amount in PnL supposed to be gross or net?

    In other words, when director gets paid to his personal account, he gets the reported salary less employee's NIC and income tax? Hence the amount in PnL is gross?

    Many thanks
     
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    DontAsk

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  • #2
    Salary is what you actually transfer to the director, so it's net of tax and PAYE deductions.

    PAYE and NI are entered as creditors and reconciled when you pay. E.g. I pay PAYE every three months by direct debit. The HMRC creditor account grows until I make a payment.

    That's how my accountant set it up.
     
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    Newchodge

    Newchodge

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  • #3
    digimars said:
    I am just trying to understand this.

    I report director's salary to hmrc. Then I pay NIC and and income tax.

    Now in PnL, I can see my accountant recorded Director's Salary (that's what I reported to hmrc) and Director's NI (as Secondary threshold percentage). The question is, is the Director's Salary amount in PnL supposed to be gross or net?

    In other words, when director gets paid to his personal account, he gets the reported salary less employee's NIC and income tax? Hence the amount in PnL is gross?

    Many thanks
    Click to expand...
    Are you talking about Employer NI or Employee NI?
     
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    DWS

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  • #4
    DontAsk said:
    Salary is what you actually transfer to the director, so it's net of tax and PAYE deductions.

    PAYE and NI are entered as creditors and reconciled when you pay. E.g. I pay PAYE every three months by direct debit. The HMRC creditor account grows until I make a payment.

    That's how my accountant set it up.
    Click to expand...
    DontAsk said:
    Salary is what you actually transfer to the director, so it's net of tax and PAYE deductions.

    PAYE and NI are entered as creditors and reconciled when you pay. E.g. I pay PAYE every three months by direct debit. The HMRC creditor account grows until I make a payment.

    That's how my accountant set it up.
    Click to expand...
    But there will be a double entry for the Creditor created, where does this go?
    It will go to the Profit & Loss, what does your Accountant post it to?
     
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    digimars

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  • #5
    DontAsk said:
    Salary is what you actually transfer to the director, so it's net of tax and PAYE deductions.

    PAYE and NI are entered as creditors and reconciled when you pay. E.g. I pay PAYE every three months by direct debit. The HMRC creditor account grows until I make a payment.

    That's how my accountant set it up.
    Click to expand...
    My accountant does the same thing. What I transfer to my personal account sits in the PnL as Director salary/renumeration. The liabilities are created until paid then cleared from company bank account.

    So its like this

    Debit
    Directors salary 15,000

    Credit
    Bank 15,000
    Paye liability 300
    Employee NIC 500

    TOTAL DEBIT 15,000
    TOTAL CREDIT 15,800

    It doesnt add up if treated as net salary.

    Whereas it does add up if treated as gross salary with deductions (this actually happens when I look at some old payslips from other jobs):

    Credit
    Bank 14,200
    Paye liability 300
    Employee NIC 500

    TOTAL DEBIT 15,000
    TOTAL CREDIT 15,000

    Do you see what I mean?

    Cheers
     
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    DWS

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  • #6
    digimars said:
    My accountant does the same thing. What I transfer to my personal account sits in the PnL as Director salary/renumeration. The liabilities are created until paid then cleared from company bank account.

    So its like this

    Debit
    Directors salary 15,000

    Credit
    Bank 15,000
    Paye liability 300
    Employee NIC 500

    TOTAL DEBIT 15,000
    TOTAL CREDIT 15,800

    It doesnt add up if treated as net salary.

    Whereas it does add up if treated as gross salary with deductions (this actually happens when I look at some old payslips from other jobs):

    Credit
    Bank 14,200
    Paye liability 300
    Employee NIC 500

    TOTAL DEBIT 15,000
    TOTAL CREDIT 15,000

    Do you see what I mean?

    Cheers
    Click to expand...
    digimars said:
    My accountant does the same thing. What I transfer to my personal account sits in the PnL as Director salary/renumeration. The liabilities are created until paid then cleared from company bank account.

    So its like this

    Debit
    Directors salary 15,000

    Credit
    Bank 15,000
    Paye liability 300
    Employee NIC 500

    TOTAL DEBIT 15,000
    TOTAL CREDIT 15,800

    It doesnt add up if treated as net salary.

    Whereas it does add up if treated as gross salary with deductions (this actually happens when I look at some old payslips from other jobs):

    Credit
    Bank 14,200
    Paye liability 300
    Employee NIC 500

    TOTAL DEBIT 15,000
    TOTAL CREDIT 15,000

    Do you see what I mean?

    Cheers
    Click to expand...
    Because it’s the gross amount taken to the P&L
     
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    Newchodge

    Newchodge

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  • #9
    digimars said:
    So basically what you report to HMRC is not the same amount that you recieve in your personal account. Deductions must be made?
    Click to expand...
    What you report to HMRC via the FPS is the total salary , the amount of PAYE deducted, the amount of employee's NI deducted and the amount of employer's NI due.
     
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    MyAccountantOnline

    MyAccountantOnline

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  • #10
    digimars said:
    .....e if the PnL record of Director's renumerations in microentity accounts is net or gross.

    Cheers
    Click to expand...

    It's gross because that's the cost to the company.

    The director/employee pays the tax and NIC (employee contributions) by having it deducted from the salary. The employer collects that and pays it to HMRC.

    The only NIC which is a cost to the company/employer is the employer NIC if they have any to pay.
     
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    numbersrule

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  • #11
    digimars said:
    So basically what you report to HMRC is not the same amount that you recieve in your personal account. Deductions must be made?
    Click to expand...
    Your Payslips should clarify the position for you.
    Payslips will show the Gross Salary which will appear in Director's Remuneration in the P&L as a cost to the Employer along with Employer NICs which are another cost to the Employer.

    Then the Payslip will show 'deductions' including PAYE Income Tax and Employee NICs both of which are subtracted from the Gross Salary to arrive at Net Pay, which is what your Employer pays over to your personal bank account.

    You have mentioned what you report to HMRC? Well what you report to HMRC is shown on your Payslips isn't it?

    What's on your Payslips should match up with the various Accounts in the P&L and Balance Sheet such as

    P&L
    DIrector's Remuneration
    Employer NICs

    Balance Sheet
    Wages Payable
    PAYE Payable
    NIC Payable

    The Balance Sheet items should zero out to 0.00 as each period is paid via the bank.

    The P&L items accumulate through the year culminating in the whole year cost to the Employer at EOY.
     
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